DOJ Staffers: The T-Mobile Sprint Merger Will Reduce Competition And Should Be Blocked

from the merge-ALL-the-things dept

We've already noted how, despite some empty promises by Sprint and Japanese-owner Softbank, the company's (second) attempted merger with T-Mobile will be a notable job killer. How bad will the damage be? At least one analyst predicts the total number of jobs lost could be more than the total number of people Sprint currently employs (around 28,000). Other analysts estimate the deal could kill something closer to 20,000 jobs, and even the most optimistic tallies put the job damage at somewhere closer to 10,000 lost positions -- most of them either in retail (as duplicate stores are closed) or among redundant management positions.

The reduction in major wireless competitors from four to three will also have an obvious, detrimental impact on competition in the space, reducing price competition in the sector and potentially putting an end to the recent, welcome return of unlimited data plans. Just ask career staffers at the Justice Department, who this week leaked word that many of them would be advising agency bosses to block the deal unless their goal is less competition in the space:

"When Sprint and T-Mobile bring their expected merger plans to the U.S. Department of Justice for antitrust review, the career staff who do the bulk of the probe into whether the deal will hurt customers will likely recommend that it be stopped, three people familiar with their thinking told Reuters...The Justice Department's main concern is how the deal would affect competition in the U.S. mobile sector. Antitrust staff will want to let T-Mobile continue as it has done, aggressively wooing customers away from market leaders Verizon Communications and AT&T, the people said.

Of course whether DOJ and FCC leaders listen to this advice is another question entirely. Trump's "populist" rhetoric on the campaign trail suggested a tough antitrust President who'd block mega-mergers that harm the public interest and market health, but his decision to approve AT&T's mammoth Time Warner merger suggests those promises were relatively hollow. And as you may have noted Trump's FCC boss Ajit Pai is a rubber stamp for giant telecom operators; a commissioner that has yet to stand up to industry on any major subject of note during his five-year tenure.

As such, this is being seen as the first real chance for the administration to put its money where its mouth is, and the same Reuters report above notes that analysts are decidedly split on whether that will actually happen:

"An informal poll of seven antitrust experts contacted by Reuters found them split between predicting that the deal would be stopped and saying they did not know if it would be allowed. A tiny fraction of deals are blocked. As influential as the career staff is, the final decision will lie with Trump's antitrust enforcer at the Justice Department, Makan Delrahim, and the Federal Communications Commission."

There's an ongoing mantra in the telecom space that blind deregulation is some kind of panacea, and that by stripping away all government oversight (including antitrust enforcement) of the broken and uncompetitive sector, connectivity and competition will magically sprout from the sidewalks. But history and real-world data consistently undermines that theory. Regulators' decision to block AT&T's attempted acquisition of T-Mobile -- and Sprint's first attempted merger with T-Mobile -- caused in a notable spike in competition thanks to a resurgent T-Mobile, resulting in unlimited data plans, better international roaming rates, the end of punitive long-term contracts, and more.

Again, Sprint has any number of potential suitors or partners that could help the company better compete (Altice, Comcast, Charter, Dish) without reducing overall competition in the sector. Crushing T-Mobile's motivation to disrupt the market by eliminating a major competitor is a notably bad idea, no matter what the industry-funded sales pitches over the next few weeks will try to suggest.

Prior Restraint

Blocking it seems like prior restraint. I don't like that our government has the power to block these things at all. We're punishing a business _before_ it breaks the law.

Instead, I'd like to see more power to investigate and punish abuses after they occur We need to start sending a message to large companies that anti-competitive abuses are unprofitable. And not just by a little bit; this should represent significant risk.

Mergers are not the only way to create mega-monopolies. Sometimes business success in a new industry or with a new product that is sufficiently disruptive to an old one grants a company this position. If blocking or placing conditions on large mergers is our tool for controlling this stuff, we'rem missing an important category of potential issues.

Re: Prior Restraint

So by that logic a forest ranger shouldn't be able to do anything if they see someone pouring a bunch of gasoline on the trees, because they haven't started a forest fire yet? Hence it would be prior restraint to punish them for trying to start a forest fire?

The damage from a monopoly isn't just in how they 'might' abuse their monopoly. It's long been shown that monopolies often hurt the whole economy, since the reduced competition allows them to raise prices and be less responsive to customer demands.

Re: Re: Prior Restraint

T-Mobile is extremely astute on this one, for sure. It goes without saying, but Germany-based T-Mobile knows that the DoJ is filled with morons, and this type of thing is only possible under a republican president.

I believe that as long as T-Mobile rolls out the red carpet, the merger will be approved and a gold star will be added and placed in the lower corner of the merger documents next to Legere's name.

It will be interesting to see because oftentimes, I think the Feds understand and know T-Mobile's business better than they do, but for now, the tables have turned.

Re: Re: Re: Prior Restraint

When last earning came out T-mobile pulled away from the merger idea and their stock fell significantly even as they torched expectations and proclaimed a bullish guidance of sunshine and rainbows.Since Legere couldn't talk up the stock enough afterwards and they need the money for their 4G LTE-network he appeared a bit grumpy before he apparently reluctantly returned to talks with Sprint.

Don't get me wrong: Sprint hired a blood and soil Trumpist to lobby for the merger to be able to tie up the deal. But T-Mobile has upgrading their own towers to 4G LTE as a fallback and saving up for the 5G push as a main priority (they are at an advantage on providing 5G sooner than VZ and co. who will provide it "better", but later!). Them eating Sprint would have been a good way to expand the infrastructure available, but they probably can't integrate Sprint and make the much needed upgrades in time for 5G deployment so the big advantage for T-mobile has passed and a merger has become far less time-sensitive and important!

Re: Prior Restraint

"Prior restraint" is generally associated with free speech, not with mergers.

I think government control of mergers is appropriate when much of the infrastructure is subsidized, and when there are physical limits on the number of competitors (you can only hang so many wires, and there are only so many wireless frequencies available.)

Re: Prior Restraint

We're punishing a business before it breaks the law.

No, we're not. This isn't punishment, for one thing. And corporate status is a privilege granted by government, when it's believed to be in the best interests of the people. There's no general right to have a group of people treated as one entity.

all people with sense know and agree with this view. what a shame, as with everything else that has been customer beneficial, it will be totally ignored by Pai of the FCC, doing whatever possible to encourage and endorse the merger. let's face it, he is an asshole of the first order who will go to any lengths to aid certain businesses, just like his boss, Trump, while screwing the public as much and as hard as possible!!

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It did seem like everyone in that market decided to "calm down" after that merger at the time: fewer new products out, fewer experiments. Not that it's really a surprise, but you can actually see the degradation of service and innovation in our lifetime as a direct result from past mergers.

ATI and AMD merging might have made them bigger in order to compete with Intel and NVidia, but ATI and AMD weren't actually directly in competition with each other.

On the other hand, Sprint and T-Mobile sell the exact same service: access to a wireless telecommunications network. You might have any combination of either an Intel or AMD CPU and either an ATI or NVidia graphics card, but you generally wouldn't choose to have both Sprint service and T-Mobile service.

ATI/AMD might have been a bad deal for consumers, but I don't think it was anti-competitive in the same way that T-Mobile/Sprint will be.

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ATI and AMD made different products. One was video cards and the other CPUs. The decided to integrate their products into one. It is different when Sprint and Tmobile are competitors and provide the same service and products. A better comparison to the ATI and AMD merger would be Sprint(wireless) merging with Comcast (ISP/TV).